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Fighting a federally ordered divestiture of bank stock that could be financially disastrous for his bottom line, Dunmore landfill magnate Louis A. DeNaples recently borrowed $10 million against the holdings of Theta Land Corp., a controversial company that owns thousands of acres of former watershed land in Luzerne and Lackawanna counties.

Mortgage documents signed by Theta officers and filed in both counties identify Theta and DeNaples as the borrowers of the $10 million, but contain no information on the term of the loan or interest. The documents are the company's first acknowledgement of long-rumored ties to DeNaples, who has denied involvement with Theta in the past.

DeNaples' attorneys are scheduled to appear Thursday before a three-judge panel in the U.S. Court of Appeals for the District of Columbia seeking to overturn an order by federal banking regulators directing DeNaples to sell his controlling interest in Dunmore-based First National Community Bank because of a 2008 perjury charge.

DeNaples, 72, owns 1.6 million shares or 10 percent of the bank's stock individually or with family members, according to a recent U.S. Securities and Exchange Commission filing. Much of DeNaples' stock was bought when shares were trading at $20 or more. The stock price stood at $3.69 Tuesday.

In a motion filed with the appeals court in May, DeNaples' attorneys alleged a forced sale would cause the former bank board chairman "irreparable professional and financial harm."

The $10 million loan from Scranton-based Penn Security Bank and Trust Co. to DeNaples and Theta places a mortgage on 3,600 acres in Luzerne County and 8,400 acres in Lackawanna County.

Theta is a former subsidiary of the Pennsylvania Gas & Water Co. that was sold to unnamed buyers for $12.15 million and unspecified water and methane rights when Southern Union Co. acquired the local utility company in 2000. Environmental groups criticized the sale because Theta held 44,000 undeveloped acres, including 28,000 that had once been protected from development to safeguard nearby reservoirs before the construction of water filtration plants.

Since 2000, Theta has sold nearly 20,000 acres for roughly $25 million, according to deeds filed in Luzerne and Lackawanna counties, with large tracts going to the state for conservation.

DeNaples, owner of the Keystone Sanitary Landfill, was identified as the possible purchaser of Theta early on because Theta's mailing address was changed to a building owned by one of his companies, but neither he nor Theta ever acknowledged any ties. In a 2001 deposition in a lawsuit unrelated to Theta, DeNaples said that he had no involvement with the company but acknowledged having an interest in the timber rights on its land. DeNaples declined comment on Theta in an interview with Scranton Times-Tribune in 2006.

In 2008, a Dauphin County grand jury that indicted DeNaples for perjury alleged in its report that he controlled Theta, but offered no details. Theta President Robert McNichols Sr. was called to testify before the jury.

The perjury charges, which centered on DeNaples' denials to state gaming regulators that he had ties to organized crime figures, were withdrawn in 2009 after DeNaples agreed to transfer ownership of his Mount Airy Casino Resort in Monroe County to members of his family.

But the agreement led federal banking regulators to bar DeNaples, who had taken a leave of absence from the FNCB board because of the perjury charges, to return to the board. Earlier this year, the board of governors of the Federal Reserve System and the U.S. Office of the Comptroller of the Currency ordered DeNaples to sell enough stock so that he no longer owns a controlling interest, typically defined as 5 percent, of the bank's stock.

For two years, the bank has been under the close supervision of the OCC, which alleged the bank engaged in "unsafe and unsound banking practices" leading to millions in loan losses and failed to report suspicious transactions.

In a recent SEC filing, DeNaples' brother, Dominick DeNaples, who is now chairman of the bank board, reported he had transferred ownership of nearly 1.2 million in bank shares to his children, leaving him with sole or joint control of 294,000 shares, or 1.8 percent of the outstanding stock.

Efforts to reach the DeNaples brothers, McNichols and officials at Penn Security Bank and Trust Co. were unsuccessful Tuesday.

djanoski@citizensvoice.com, 570-301-2178

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